Cryptocurrency prices have opened up a window of opportunity for beginner investors. Bitcoin prices have fallen considerably from unprecedented highs in late 2021, but they remain higher than averages from just three or four years ago.
Buying low is a great way to get into an asset, but before you take the plunge and start investing in crypto, read these five tips to help maximize your chances of success.
Table of Contents
#1 Make a Tax Plan
Cryptocurrency is just like any other asset, and you will have to pay taxes if you successfully turn a profit. Cryptocurrencies are considered property, and anytime you sell or exchange cryptocurrency, it’s considered a taxable transaction. Even paying for goods or services with cryptocurrency can result in income taxes.
If you’ve already conducted cryptocurrency transactions without reporting the income, get in touch with Crypto Tax Lawyer. There can be steep consequences to crypto tax evasion, including auditing and even prosecution, but a tax lawyer with knowledge of crypto can help you report unclaimed income and work with auditors to avoid unnecessary penalties.
Before you get into crypto, consider the income tax implications.
#2 Diversify Your Portfolio
Much of the discussion around cryptocurrency tends toward tribalism: you pick your coin out of hundreds and become a cheerleader. This can be tempting, but it is not a recipe for long-term success.
A diversified cryptocurrency portfolio will spread the risk around and help you avoid major pitfalls, such as putting all of your money in an altcoin that is not long for this world.
Despite the high prices, major players Bitcoin and Ethereum belong in a diversified portfolio. Many investors choose altcoins because they’re hoping a breakout will multiply their investment, the same way Bitcoin and Ethereum did in the past.
However, if you want exposure to the cryptocurrency market in general, Bitcoin and Ethereum are the best ways to get it.
#3 Research Developer Activity
When you’re looking at more affordable altcoins, developer activity is a great indication of whether the project is serious or not. Most worthwhile projects should have developer activity public on GitHub, where you can look into the latest activity.
If a project claims to have major releases on the horizon but no recent activity, it’s a sign that the project may be a scam. Always compare real activity to the project’s claims.
#4 Invest What You Can Afford
This rule doesn’t just apply to crypto; it should apply to all of your investments. There is no such thing as a guarantee in the investment world. You’re taking a risk for future growth, but with that comes the risk that your investment could lose value.
Never invest money that you can’t afford to lose. Part of smart investing is keeping an emergency fund and matching your investment to your risk tolerance. As of now, cryptocurrency remains a highly volatile and, therefore, risky investment.
#5 Think Long-Term
The more time you have before you need your investment to pay off, the more risks you can take. If you know you’re going to need the funds you’ve invested in the short term, you want to look into safer, low-risk investments.